Deep Water Horizon Rig Employment
Off-Shore Moratorium
The economic impact of shutting down a deep water drilling rig is no doubt massively expensive. But employment impact is different. As a benchmark, the employment on the BP rig was 126 persons. It is reported that wages average about 100k per year for those workers. However, I could not find that person anywhere, except in the management ranks according to National OES data! Furthermore, most if not all support workers, according to the BLS, make less than 1/2 that unsubstantiated amount.
Interestingly, as soon as we get into a multiplier discussion, the numbers start off ridiculously high and go up from there. But a multiplier over two is not reasonable or supported in any research and especially not in this case. One primary reason is the service nature of the JOBS we are talking about, NOT the industry multipliers.
Rig Count
Of all the rigs out there, only 4% are off shore! (Baker Hughes) Therefore few if any support persons are going to be affected by a stoppage of drilling; as a result of 94 percent of their support services not being located off-shore. A potential economic impact is close to 400 million a year, which includes a multiplier. More likely however, those wages are moved to another location, or just paid, the result being no impact. The reason is most companies can not afford to idle (loose) those skilled workers.
Simple calculation: (number of rigs, 33 * employment, 126/rig * wages, 100k)
BP Gulf Oil Spill: Brownfield Site Economic Impact
Current State (June 2010)
The purpose of this post is to start organizing a framework that allows us to develop an economic impact and forecast for the BP Gulf Oil Spill. It is important to know the difference between these two analytical techniques, so it will be helpful to review the definitions.
What do we know? Not a whole lot. One reason for this is the enormity of the problem, which involves numerous disciplines, including social science, economics, environmental science, physics, engineering, statistics and in many cases, jerryrigging (MacGyver!). Many of these disciplines do not have cross-references between them, making it even more difficult to share data and information.
Building a Framework
Building an economic/ecologic framework includes some key inputs, which will grow daily and over time.
Geography: Coastal Water Shed
The geography is currently limited to the coastal counties. Here is a link to the counties located on the Gulf Coast along with a portion of their basic economic data from ESRI. From an economic and ecologic standpoint, we will need to expand this geographic definition. Here’s why:
1) Ecological impacts will likely occur in coastal watersheds. Here is a list of those counties from NOAA which identifies that specific geography.
2) These geographies are small economic areas so their economies depend on outside regions for both imports and exports. (Miller and Blair, 2009)
In particular, coastal communities rely on exports of real estate and services to visitors – and also on natural resource exports. Natural resource exports include different forms of fishing as well as oil, natural gas, salt and other mined resources. Ultimately our geography will need to include both the ecologic and economic flows between counties and regions to get a true approximate impact of the event as it unfolds. These data then can be used to create a long-term forecast.
Industry: Small and Large
Local industry is identified by reviewing BLS, QCEW data, County Business Patterns, or extracting industry data from an impact model. One of the problems with these data is that many of the businesses are small, family run operations that likely manage cash flow in unique ways. Therefore, calculating an accurate accounting of impacts will take a little work.
Timeline: Short and Long
We have a problem with the timeline since there has already been a direct environmental and economic impact. We know there is a longer – and likely larger – environmental and economic impact going forward. This will require a forecast. We know this in part because of what history has taught us about oil spills.
Environmental Impact: Exxon Valdez
One primary environmental reference is the Exxon Valdez (See Q and A) . What is particularly important about the Exxon Valdez spill is the environmental complications from this spill. Note the Exxon Valdez spill is no longer in the top 50, in terms of volume, for oil spills. However, the Exxon Valdez spill does give us an excellent estimate of expected clean-up costs.
Economic Impact: Brownfield Site
The BP Gulf oil spill economic impact and forecast has taken on a completely different dimension. The economic impact will likely run along the lines of a brownfield site. This is a very serious statement. The brownfield definition has some key components that will allow us to accurately analyze the Gulf oil spill. These include:
1) Real estate prices. Unlike the Exxon Valdez spill, the BP Gulf spill will affect millions of home and real estate owners throughout the Gulf. Even a small drop in real estate prices could represent significant monetary loses.
2) Many fishing businesses will be lost, unable to re-open or operate in the Gulf. Spending patterns for vacationers (non-real estate) will be significantly different than prior to the spill. Some raw minerals industries may not be affected at all and the rest may only see a partial impact. This is an issue of limited resources and the opportunity cost of using those resources.
3) Crude oil is difficult and expensive to eradicate from an ecosystem. Crude from the Exxon Valdez is still present today with the same level of toxicity it had 20 years ago!
4) By definition brownfield sites account for inflows and outflows of money, employment, industry and related social impacts.
The Process: It All Starts with the Data
The above defines key framework elements to a short-term impact study and long-term forecast of the spill. No doubt the Gulf will be recovering from this spill well into the future, and as data become available it will be incorporated into this framework.
Historical:
Economic Impact Studies of Exxon Valdez
Impact Research BP Gulf Oil Spill
BP Gulf Oil Spill: Brownfield Site
Definition of Brownfield from the EPA: “With certain legal exclusions and additions, the term “brownfield site” means real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.”
The definition goes on to state:
“(D) ADDITIONAL AREAS- For the purposes of section 104(k), the term “brownfield site” includes a site that–
(i) meets the definition of “brownfield site” under subparagraphs (A) through (C); and
(ii)(I) is contaminated by a controlled substance (as defined in section 102 of the Controlled Substances Act (21 U.S.C. 802));
(II)(aa) is contaminated by petroleum or a petroleum product excluded from the definition of “hazardous substance” under section 101; and
bb) is a site determined by the Administrator or the State, as appropriate, to be(AA) of relatively low risk, as compared with other petroleum-only sites in the State; and
(BB) a site for which there is no viable responsible party and which will be assessed, investigated, or cleaned up by a person that is not potentially liable for cleaning up the site; and(cc) is not subject to any order issued under section 9003(h) of the Solid Waste Disposal Act (42 U.S.C. 6991b(h)); or
(III) is mine-scarred land.”
Economic Impact – Forecasting Definition
As a result of the BP Gulf Oil spill, persons are using the term “Economic Impact” or “Impact Analysis” more frequently. The definition of impact analysis is: “When the exogenous changes occur because of the actions of only one “impacting agent” (or a small number of such agents) and when the changes are expected to occur in the short run (e.g., next year), this is usually called impact analysis”. (Miller and Blair, 2009)
The definition for forecasting is: “If we project the levels of final demand for outputs of all sectors in an economy fives years hence, and estimate, using the Leontief inverse, the outputs from all sectors that will be needed to satisfy this demand, this is an exercise in forecasting”. (Miller and Blair, 2009)
The issues in the Gulf are going rely on a combination of these to analysis techniques.
Unemployment Definition (BLS)
Unemployment Data
Unemployment numbers are one of the few data sets that are reported and analyzed in the media. Unfortunately, most of the current media analysis is flawed because writers don’t understand the definition of unemployment as reported by the Bureau of Labor Statistics (BLS). Here is a link to that definition(pdf). This post is to help you understand the basic definition of unemployment.
Key Points for Everyday Analysis:
Civilian Labor Force (labor force): These are the people who are counted, age 16 and older. It does not include folks in institutions such as prisons, nursing homes, military, etc.
Employed: This term applies to anyone did any work on the 12th of each month as paid employee at a farm or business, 15 hours or more in a family business, or had job but was on vacation, sick, absent due to bad weather, etc. Even those holding more than one job are counted only once.
Unemployed: People who weren’t employed on the 12th, but were available to work and were looking for work over the past four weeks.
Unemployment Rate Calculation: The ratio of unemployed to civilian labor force, expressed as percent.
Analysis Discussion:
What happens in the labor force makes a difference in the unemployment rate – specifically when people enter and exit. As an example, if more people enter the labor force than can find a job, the unemployment rate goes up.
Always consider the three classifications in the calculation; labor force, employment and unemployment. Focus on trends, not individual points. Compare trends, not points, from one year to the next. Think about what happens in the labor force during the year, such as a big layoff, teachers being hired in the fall, hurricanes. Review the Current Employment Statistics (CES) establishment survey data for clues to employment changes by industry.
Don’t confuse the neighborhood unemployment rate with the official BLS unemployment rate. True, if your neighbor is unemployed her unemployment rate is 100 percent, but this number has no correlation to the official unemployment rate.
Think of the unemployment rate as a tide. Thus, a drop of water tells you very little. Only by standing back and looking at the coastline can you discern the effects of water level change. You may not like the BLS definition, but the trend it produces is powerful.
How is unemployment calculated? See Unemployment Calculation Method and Documentation
“Green” versus “Conservation” Jobs
Green Jobs: The Issue
I likely am one of the first and few to question the reality of “Green“ jobs. The current employment buzz focuses on jobs in Green industries, even though no definition exists for these industries or jobs for that matter. There have been a number of attempts to identify the “Green” job. Below is one example from the State of MN:
“We’re moving to a green economy, a sustainable economy. Energy in the future will come from the sun, the wind, the waves and even algae. There will be a need for trades-people who understand conservation, attorneys who comprehend cap trade, energy employees who “get” smart grids and co-generation.”
No real definition there, rather a list of principals all well and good. However, note in the last part of this statement there is a small reference to conservation!
Conservation is where the Money is, thus the Jobs will follow!
Recently I reviewed the sources and uses of energy, industries which define part of the Green job discussion. It occurred to me while viewing this graphic that we in the U.S. are missing a huge opportunity to conserve- currently not necessary part of our history, popular culture or thinking. But how can conservation create jobs, and lot of them. The answer lies through gains in productively and thus market shares.
The Formula
This is an old rule in manufacturing (knowledge and skill sets we are losing in this country). If one can make a product or deliver a service at less cost, market share will follow as long as there is demand. As you note from reviewing the graphic, the immediate opportunity available in “green” industries is small. Contrary to common knowledge, is the market opportunity to reduce wasted energy. If we were able to conserve/reduce waste, the result would be increased efficiency leading to higher productivity and ultimately increased market share the final result being significant numbers of new jobs.
The BLS is starting the process of defining the green job. I wish them luck. In the mean time it will be interesting to see where the real jobs show up in our economy- I am putting my bet on where the money is.
